EU/US diverge on leveraged lending cap

Author: Lizzie Meager | Published: 16 Jun 2017

The EU is finalising plans for a cap on leveraged lending to discourage risky investments, just as the US considers repealing the same rule – moving the goalposts yet again on EU-US harmonisation.

The prospect of transatlantic harmonisation slips further awayThe moves reflect the differing paces of change on either side of the Atlantic. The US has had these guidelines in place since 2013 to prevent banks from granting loans that are more than six times leveraged – but do not ban the practice outright.

There are fears that the EU guidance, issued by the European Central Bank (ECB), will push risky lending into unregulated domains as has been found in the US.

“In so many ways the ECB is mirroring the US guidelines on leveraged lending in order to create a more levelled playing field,” said Tamer Bahgat, partner at Ashurst in London. “But there are lessons from the US one...